Indian Markets are expected to open flat to positive tracking positive opening in most of the Asian markets and the overnight gains on Wall Street. Investors will now keenly watch out for announcement from the Federal Reserve policy meeting on Wednesday regarding its bond-buying stimulus program.

US markets ended Tuesday with the best gains in two weeks, as indexes rebounded from heavy losses in the previous three sessions. Rising emerging markets, upbeat earnings from few companies and a rise in consumer confidence lifted sentiment. A report from the Conference Board showing a continued improvement in consumer confidence in the month of January added to the positive sentiment. The Conference Board said its consumer confidence index climbed to 80.7 in January from a downwardly revised 77.5 in December.

On domestic front, the Indian markets ended marginally in the red on Tuesday, after the Reserve Bank of India unexpectedly hiked benchmark repurchase rate by 25 basis points to 8% in a bid to curb retail inflation. The RBI also indicated that in case the trajectory for inflation moderates as anticipated further policy tightening is unlikely in the near term, which helped the markets in restricting losses.

Markets Today

The trend deciding level for the day is 20,678/ 6,125 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 20,801 - 20,919 / 6,165 - 6,203 levels. However, if NIFTY trades below 20,678 / 6,125 levels for the first half-an-hour of trade then it may correct 20,560 - 20,437 / 6,087 - 6,048 levels.

RBI hikes policy repo rate by 25bp

In its 3QFY2014 Monetary Policy Review, the Reserve Bank of India (RBI) hiked the policy repo rate by 25bp to 8.0% while markets were at best expecting a status quo on rates with only a slim probability of repo rate hike. The reverse repo stands adjusted at 7.0% and the Marginal Standing Facility (MSF) too stands adjusted at 9.0%. The Cash Reserve Ratio (CRR) has remained unchanged at 4.0% of banking system's net demand and time liability (NDTL). The increase in rates is consistent with the RBI's guidance during the December 2013 policy review with regard to non food, non fuel inflation and Urjit Patel Committee report of bringing CPI inflation lower to 8.0% over the next 12 months. The RBI has revised its real GDP growth estimate for FY2014 slightly downwards from 5.0% earlier to Rs.a little below 5.0%Rs. and indicated at a modest recovery during FY2015 ranging between 5.06.0%.

Repo rate hike comes as a surprise as markets expected status quo

During December 2013, aided by substantial moderation in vegetable prices from unusually high levels, headline CPI inflation decelerated to 9.87% from 11.16% in the previous month while WPI inflation came in at 6.16% as compared to 7.52% in November 2013. At the same time though, core CPI inflation remained elevated at 8.0% levels while core WPI inflation picked up slightly to 2.7% during December 2013.

In its December 201 3 policy review while the RBI maintained status quo on rates, it had indicated at a hike in policy rates in case a) softening of food inflation did not materialize or b) inflation excluding food and fuel did not fall. But the low probability assigned for a rate hike during the 3QFY2014 policy review was largely on account of food inflation cooling off as compared to the previous few months resulting in substantial respite to headline inflation. However, not only is the RBI's policy stance consistent with its guidance but it is also gearing towards the Urjit Patel Committee report's target of containing headline CPI inflation at 8.0% over the next 12 months and 6.0% over the next 24 months.

Price-stability remains priority for monetary policy

Although the RBI has expressed concern over the sluggish pace of economic growth, it has clearly indicated that its priority remains addressing risks to the inflation outlook and anchoring inflation expectations in the economy. It noted that Rs.hardening prices of services and key intermediates seen in conjunction with rising bank credit, increase in order books, pick-up in capacity utilization and the decline in inventories of raw materials and finished goods in relation to sales suggests that aggregate demand pressures are still imparting an upside to overall inflationRs.. It has also indicated that during FY2015 upside risks to inflation are likely from revision in administered fuel prices and growth acceleration. The RBI expects CPI inflation to range between 7.5-8.5% in 4QFY2015.

Policy Outlook

While monetary policy actions going forward are likely to remain data-dependent, the RBI has indicated that in case the trajectory for inflation moderates as anticipated further policy tightening is unlikely in the near term. We expect additional respite from elevated headline retail inflation in the near term itself owing to further moderation in food inflation. We believe that the RBI is likely to maintain a pause on rates in its next policy review scheduled on April 01, 2014.

Result Review

NTPC (CMP: Rs.129/ TP: Under Review / Upside: -)

For 3QFY2014, NTPC reported a robust set of results. The company's top-line grew by 19.0% yoy (15.4% qoq) and came in at Rs.18,779cr vis-a-vis Rs.15,775cr in 3QFY2013. Generation revenues also increased to Rs.18,883cr vis-a-vis Rs.15,839cr in 3QFY2013 even though generation had seen a decline of 1.7% yoy from 60,147GW in 3QFY2013 to 59,098GW in the current quarter. However, EBITDA margin saw a drop of 67bp yoy to 24.7% from 25.3% in 3QFY2013 majorly due to an increase in employee expenses. Meanwhile, the net profit increased by 10.2% yoy to Rs.2,861 cr (Rs.2,597cr in 3QFY2013). NTPC is currently trading at a valuation of 1.2x 2015E BV. Awaiting interaction with the management and further clarity, we have kept the rating and target price under review.

Sterlite Industries (CMP: Rs.200/ TP: Under review/ Upside: -)

Sesa Sterlite's (Sesa) 3QFY2014 net profit was above street expectations. Actual 3QFY2014 results are not comparable with 3QFY2013 results as the two companies, Sesa Goa and Sterlite Industries were merged during August 2013 to form Sesa Sterlite. Sesa's 3QFY2014 net sales stood at Rs.19,523cr. Its EBITDA stood at Rs.6,490cr while its reported net profit stood at Rs.1,868cr. There was no iron ore production during the quarter due to ban in Goa; however, the company's iron ore production in Karnataka commenced production during the quarter (annual capacity 2.29mn tonnes). We believe that commencement of iron ore mining in Goa is likely to take its own time (as witnessed in Karnataka over the past two years). We keep our rating and target price under review.

Maruti Suzuki (CMP: Rs.1,563/ TP: Under Review/ Upside: NA)

Maruti Suzuki (MSIL) reported strong results for 3QFY2014, ahead of our estimates, driven largely by cost control measures, localization benefits and favorable currency movement. While the top-line was broadly in-line with our estimates; bottom-line at Rs.681cr was higher than our estimates of Rs.620cr due to better-than-expected EBITDA margins at 12.4%. A notable development accompanying the results was the board decision on the Gujarat plant. The board has approved implementing the expansion through a 100% Suzuki subsidiary, which would do contract manufacturing for MSIL.

The top-line recorded a sequential growth of 4.1% to Rs.10,894cr, in-line with our estimates of Rs.10,928cr, driven by 4.6% qoq growth in volumes led by the festival demand. Net average realization declined marginally by 0.5% due to higher discounts (up ~11% qoq) and adverse product-mix. On a yoy basis though, topline declined 2.7% yoy due to 4.4% yoy decline in volumes. Net average realization however improved 1.4% yoy despite sharp jump in average discounts (up ~60% yoy) led by better product-mix and price increases. While domestic revenues stood flat yoy (up 11.5% qoq); export revenues plunged 29.5% yoy (38.8% qoq) due to 38.6% yoy (41.3% qoq decline in export volumes. On the operating front, EBITDA margins surprised positively, as it stood flat sequentially at 12.4%, ahead of our expectations of 11.1%. The surprise was driven primarily on account of the cost reduction initiatives and localization benefits which negated the impact of unfavorable forex movement (lagged impact on vendors import). Additionally, lower distribution expenses due to lower exports (other expenditure down 4.8% sequentially) also aided the EBITDA margins. Driven by strong operating performance, net profit was ahead of our estimates.

While the company reported strong results, the announcement of sourcing vehicles through Suzuki's subsidiary to be set up in Gujarat weighed on the stock performance which led to a sharp decline of ~8% in the stock price during the day. We are surprised by the change in company's growth strategy for the future. The stock rating is currently under review.

JSW Steel (CMP: Rs.930/ TP: -/ Upside: -)

JSW Steel's (JSW) standalone 3QFY2014 top-line and bottom-line were ahead of our estimates. 3QFY2014 results are not comparable with 3QFY2013 as its 3QFY2013 results do not include the impact of JSW Ispat which had merged with JSW during 4QFY2013. Standalone net sales stood at Rs.11,731 cr, above our estimate of Rs.1 1,358cr due to better than expected realizations. JSW's standalone sales volumes stood at 3.08mn tonnes which were below our estimate of 3.19mn tonnes. Realization stood at Rs.38,089/tonne which were above our estimate. EBITDA stood at Rs.2,303cr, representing an EBITDA margin of 19.6% in line with our estimate of 19.6%. Net profit stood at Rs.652cr (slightly better than our estimate of Rs.618cr). The company expects its FY2014 sales volumes to exceed its previous guidance of 11.55mn tonnes. With slower than expected ramp up of iron ore mining in Karnataka, we believe increasing steel production meaningfully during FY2015 would remain a challenge. Moreover, given expensive valuation (4.9x FY2015 EV/EBITDA), we recommend Neutral rating on the stock.

Ipca labs (CMP: Rs.798/ TP: -/ Upside: -)

Ipca Laboratories, posted results better than expected on the net profit levels, mainly on back of OPM expansion, which was better than expected. On the sales front, the company posted net sales of Rs.815cr V/s Rs.824cr, posting a yoy growth of 17.7%. The growth was lead by the exports sales, which rose by 19.1% yoy, while domestic sales posted a growth of 15.3% yoy. The domestic formulation sales grew by 15.8% yoy. The OPM is came much ahead of expectation, which expanded by 284bp yoy to end the period at 24.5%.on back of the same, the adjusted net profit came in at Rs.141 cr V/s expectation of Rs.123cr, registering a growth of 60.3% yoy. This came inspite of the higher tax outgo during the period, which was around 26% of PBT V/s 19% of PBT during the last corresponding period, mainly on back of better than expected OPM, higher other income (Rs.23cr V/s Rs.13cr in 3QFY2013) and reduction in the interest expenses (Rs.5cr V/s Rs.26cr in 3QFY2013).We remain neutral on the stock.

Jyothy Laboratories (CMP: Rs.193/ TP: Rs. 213/ Upside: 10%)

Jyothy Laboratories (JLL) continues to report strong set of numbers. For 3QFY2014, the company reported topline in-line with our expectations and operating margin and profit marginally above our expectations. The top-line grew by 26.8% yoy to Rs.297cr, against our estimate of Rs.305cr. The soap and detergent segment registered the highest growth yoy by 28.4% to Rs.240cr, home care segment continues to show upturn in revenues registering a growth of 25.9% on yoy basis to Rs.56cr. The advertisement cost and selling expense for the quarter stood at Rs.27cr (9.2% of net sales), 71.6% higher than the same quarter last year. The operating margin came in at 14.3%, marginally ahead of our estimate of 13.6%, attributable to mainly lower than expected raw material cost. The company reported a profit of Rs.27cr during the quarter, growth of 63.0% on yoy basis, against our estimate of Rs.26cr. Given the successful amalgamation and restructuring along with the various marketing initiatives taken, we remain positive on the company from a longer term perspective. We continue to maintain our Accumulate rating on the stock with a target price of Rs.213 based on the target PE of 23x based on FY2015E earnings.

Result Preview

ICICI Bank (CMP: Rs.1,019/ TP: Rs.1,366 / Upside: 34.0%)

ICICI Bank is scheduled to announce its 3QFY2014 results today. We expect the bank to report a healthy NII growth of 20.4% yoy to Rs.4,214cr. Non-interest income is expected to grow moderate at 5.7% yoy to Rs.2,342cr. Operating expenses are expected to increase by 12.5% yoy to Rs.2,543cr. Provisioning expenses are expected to increase by 80.9% yoy to Rs.667cr. Overall, we expect the PAT to grow by 10.0% yoy at Rs.2,475Cr. At the CMP the stock trades at 1.5x FY2015E ABV. We recommend a Buy rating on the stock, with a target price of Rs.1,366.

Bharti Airtel (CMP: Rs.306/ TP: Rs.350/ Upside: 14%)

Bharti Airtel is slated to announce its 3QFY2014 results today. We expect the company to record revenue of Rs.21,761cr, up 2% qoq. In domestic mobile services, ARPM as well as MOU is expected to move up on a sequential basis by 1% and 2% to Rs.0.44/min and 450min, respectively. Africa business is expected to post ~2% qoq growth in revenues (USD terms). Consolidated EBITDA margin of the company is expected to go up by ~50bp qoq to 33.5% PAT is expected to be at Rs.814cr. We maintain our Accumulate rating on the stock with a target price of Rs.350.

GAIL (CMP: Rs.345/ TP: -/ Upside: -)

GAIL is expected to announce its 3QFY2014 results today. We expect the company's top-line to grow by 10.1% yoy to Rs.13,734cr on account of higher volumes. The operating margin is however expected to contract by 172bp yoy to 14.3%. On the bottom-line front, we expect GAIL to report a decrease of 4.3% yoy to Rs.1,229cr. We maintain our Neutral view on the stock.

Nalco (CMP: Rs.35/ TP: -/ Upside: -)

Nalco is slated to report its 3QFY2014 results today. We expect net sales to increase by 4.4% yoy to Rs.1,744cr. The EBITDA margin is however expected to expand by 560bps to 16.5% due to increase in sales of higher margin alumina and the net profit is expected to increase by 60.8% yoy to Rs.191cr. We recommend Neutral rating on the stock.

Tata Global (CMP: Rs.139/ TP: -/ Upside: -)

Tata Global is expected to declare its 3QFY2014 results today. We expect the consolidated top-line to grow by 8.1% yoy to Rs.2,057cr. OPM is expected to decline by 52bp yoy to 9.5%. Bottom-line is expected to increase by 25.5% yoy to 101cr. We maintain our Neutral recommendation on the stock.

Crompton Greaves (CMP: Rs.104/ TP: Rs.130/ Upside: 25%)

For 3QFY2014, we project Crompton Greaves to report a double digit top-line growth of 11.0% yoy to Rs.3,299cr as the company executes its robust order book. On the EBITDA front, the company's margin is expected to expand by an impressive 573bp yoy to 5.8% (albeit on a very low base due to productivity losses in 3QFY2013). Consequently, the company is expected to post a net profit of Rs.79cr compared to a loss of Rs.68cr in 3QFY2013. We recommend Buy on the stock with a target price of Rs.130.

Indian Overseas Bank (CMP: Rs.46/ TP: Rs.49/ Upside: 6.1%)

IOB is scheduled to announce its 3QFY2014 results today. We expect the bank to report weak NII growth of 7.5% yoy to Rs.1,485cr. Non-interest income is expected to de-grow by 10.3% yoy to Rs.461cr. Operating expenses are expected to increase by 12.5% yoy to Rs.988cr which would result pre-provisioning profit de-growth of 5.8% yoy at Rs.958cr. Provisioning expenses are expected to decrease by 13.8% yoy (on back of larger base in 3QFY13) to Rs.699cr, due to which net profit is expected to increase by 55.2% yoy at Rs.181cr. At the CMP, the stock trades at valuations of 0.4x FY2015E ABV. We maintain our Neutral recommendation on the stock.

TVS Motor (CMP: Rs.68/ TP: -/ Upside: -)

TVS Motor is scheduled to announce its 3QFY2014 results today. We expect the company to report a ~14% yoy (~3% qoq) increase in the top-line to Rs.2,051cr driven primarily by a strong ~14% yoy (~1% qoq) growth in net average realization led by superior product-mix and also on account of better realization on the exports front. The volume growth is expected to remain flat due to weakness in the domestic markets where volumes declined 3.2% yoy. Exports on the other hand continued its strong growth trajectory registering a growth of 26.1% yoy during the quarter. We expect EBITDA margins to improve slightly by ~20bp sequentially to 6.1% due to superior product-mix and price increases. Led by a strong operating performance and sharp reduction in the interest cost, we expect adjusted bottom-line to surge ~31% yoy (~17% qoq) to Rs.69cr. At the CMP, the stock is trading at 10.2x FY2015E earnings. Currently, we have a Neutral rating on the stock.

Jagran (CMP: Rs.89/ TP: Rs.116/ Upside: 30%)

Jagran is slated to announce its 2QFY2014 results. The company's top-line is expected to grow by 19% yoy to Rs.407cr aided by increase in advertising yields and inclusion of Nai Dunia financials. On the operating front, OPM is expected to expand by 84bp yoy to 25.4%. In spite of strong double-digit top-line growth and margin expansion, Net profit is expected to decline by 4.3% yoy to Rs.63cr (due to high base effect on account of tax benefit in 3QFY2013). At the current market price, Jagran is trading at 11.5x FY2015E consolidated EPS of Rs.7.7. We maintain Buy on the stock.

Indoco Remedies (CMP: Rs.124/ TP: -/ Upside: -)

Indoco Remedies is expected to report a sales growth of 24.2% to Rs.187cr. The OPM is expected to expand by 380bp yoy to 14.6%. As a result, the net profit is expected to increase by 135.8% yoy to Rs.1 7.4cr. We remain neutral on the stock.

Economic and Political News

- Food Ministry proposes Rs.1 0/quintal hike in cane FRP for 2014-15

- India close to buying Japan-made military aircraft in US$1.65bn deal